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Can a defendant who had been conclusively debarred from defending a claim be granted permission to appeal against the substantive judgment of the claim? Nathan Capone, associate at Fieldfisher, looks at how the Chancery Division dealt with that issue in Hall v Elia.
Hall and another v Elia and another  EWHC 1697 (Ch),  All ER (D) 63 (Jul)
The Chancery Division refused an application by a mother for permission to appeal against a registrar’s decision that a deed by which her son had purported to assign his interest in a property to her was a sham or, in the alternative, should be set aside pursuant to sections 339, 340 or 423 of the Insolvency Act 1986 (IA 1986). The Chancery Division judge found that as the mother had been debarred by the registrar from defending the claim, she should be refused permission to appeal against his decision on the deed of assignment.
The son and mother maintained that by a deed of assignment he had sold his interest in the property to her before the bankruptcy order was made against him. His trustee in bankruptcy claimed a beneficial interest in the property, as did the liquidators of his company on the basis that company monies had been used to fund the purchase of the property.
The trustee and liquidators applied to the Bankruptcy Court for the deed of assignment to be set aside. The registrar held that the assignment was
Prior to the hearing, the registrar had debarred the mother from defending the application and adducing evidence owing to her failure to comply with his previous orders.
The mother’s application for permission to appeal against the debarring order was refused by the Chancery Division.
Despite being conclusively debarred from defending the claim and adducing evidence, the mother nevertheless applied for permission to appeal against the registrar’s substantive judgment.
The judge was required to determine whether a defendant who is debarred from defending a claim and adducing evidence may nevertheless appeal against the substantive judgment.
Relying on Thevarajah v Riordan  EWCA Civ 14,  All ER (D) 89 (Jan) and Thevarajah v Riordan  EWCA Civ 41,  All ER (D) 37 (Feb), the trustee in bankruptcy and the liquidators submitted that the consequence of the mother being debarred from defending was that she was unable to make any submissions upon either the evidence or the law. Although the trustee and liquidators were still required to prove their case on the balance of probability, the Court of Appeal’s remarks in Thevarajah meant that a debarred defendant could not make submissions or dispute any of the claimant’s claims in the proceedings.
In those circumstances, the trustee and liquidators argued that there could be no basis upon which the mother could legitimately seek to challenge by way of appeal any of the registrar’s findings. If the debarral sanction was to have its proper effect, the mother could not be heard to say to an appellate court that which she could not have said to the registrar. It followed that the mother could have no standing to challenge any of the registrar’s findings in his substantive judgment.
The mother argued that the remarks of the Court of Appeal in its first Thevarajah decision on the extent of the operation of the debarral were obiter. Moreover, the Supreme Court had not addressed those comments when the Court of Appeal’s decision was unsuccessfully appealed.
The judge held that although the Court of Appeal’s remarks in Thevarajah were obiter, they ‘put down a marker’ and should not be ignored. The fact that the Supreme Court had not addressed the remarks was irrelevant because it did not need to address them. In any event, the judge stated that had the Supreme Court disagreed it would have said so.
The judge also noted that there had been several other cases in which counsel had declined to make submissions after debarring orders had been made against their clients. Accordingly, if a defendant was conclusively debarred from defending a claim, it cannot then challenge by way of appeal the substantive judgment. The mother was nevertheless correct that a debarring order did not prevent her from pointing out manifest errors in the judgment, but she had failed to identify any.
The judgment is helpful in that it clarifies the extent to which a defendant can seek permission to appeal against a substantive judgment having been conclusively debarred from defending the claim. It appears that only if a defendant can identify a ‘manifest error’ in the substantive judgment will there be a prospect of being able to obtain permission to appeal.
A defendant which is debarred from defending a claim and debarred from adducing and relying upon evidence cannot make submissions at trial. In other words, it cannot participate. The claimant must nevertheless prove its case on the balance of probability. A debarred defendant’s defence is not ‘erased’ as a result of the debarring order and a claimant may rely on the defendant’s statements of case as these may be potentially relevant as to whether there were any admissions.
Nathan Capone represented the trustee in bankruptcy and liquidators in this case.
Interviewed by Robert Matthews.
The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.
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First published on LexisPSL Restructuring and Insolvency
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